Canada

A Large Canadian Bank Just Blamed The Bank of Canada For The Property Bubble

One of Canada’s largest banks made an unusual move — they called out the role the Bank of Canada (BoC) played in the property bubble. Well, they subbed them. BMO senior economist Robert Kavcic sent clients a housing analysis this morning. He attributes the transition from a hot market to one that’s going to burn down the economy, to a promise of low for long interest rates. The promise has been made directly by the BoC, in multiple attempts to calm households. Instead, it accidentally caused a surge of FOMO-driven panic buying.

BMO Blames The Bank of Canada For Adding Gas To The Fire

BMO said what everyone is thinking — the BoC just sent homebuyers on a FOMO-driven spree. Kavcic attributes the current acceleration of home buying to the BoC. He wrote, “a surge in demand started by the pandemic, but now set ablaze by the promise of low-for-very-long interest rates.”

By setting this expectation, the central bank has panicked a busy market into a reckless one. Buyers are now buying as much house as possible, as quickly as possible. The organization’s statement sparked a “fear of missing out on widely expected price gains,” says Kavcic. Adding, “and probably the increased speculation that those expectations bring.” If the BoC is saying they’ll give people cheap debt for a long time, it’s hard to argue against speculation.

Home Sale Inventory Shows Higher Than Typical Growth

The Big Six bank does think supply issues are very real, and there’s definitely a shortage. That trend just isn’t what’s behind the sudden acceleration in 2021. He said, “we’re highly sympathetic to longer-term supply-side constraints in the housing market, and have been highlighting them for almost a decade. But that is not what’s at play today.” 

Canada is seeing a large amount of inventory coming to market, compared to normal. “Despite the belief that there is a dearth of inventory, new listings have been coming to market about 10-15% faster than normal,” he points out. “This is historically a solid flow of inventory.”

BOC-Created FOMO Driving Excess Demand

The economist found demand is the primary issue, due to the unnatural FOMO created by the BoC. He points to home sales in Vancouver and Calgary. The regions are ~60% higher than pre-pandemic levels, showing accelerated growth in March. Last year during March, home sales were at typical volumes. April is when home sales suffered a temporary drop, which will create a year-over-year boost. At least statistically. 

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68 Comments

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  • Reply
    Travis Hunter 6 days ago

    Of the many things I’ve learned from you guys, the meaning of “subbed” is by far my favorite. haha.

    • Reply
      J 6 days ago

      If you use am acronym throughout your article, you should give the full verbage on the first use. Basic writing skills.

      • Reply
        Brennan Aguanno 5 days ago

        If you don’t know what FOMO means, you’re missing out.

        • Reply
          Peter Schopfer 5 days ago

          Ok. What am I missing? I DON’T know what FOMO stands for.

          • Ali 5 days ago

            Father out Mother out

          • FOMO 5 days ago

            Fear Of Missing Out. You can use this amazing tool when you don’t know something…it’s called Google (or the search engine of your choice)

          • Paul 5 days ago

            Are you trolling us? You are missing out on something 🙂

        • Reply
          Darrell 4 days ago

          What also needs to happen is to stop foreign investors from driving the prices through the roof for every other hard working Canadian ….if you don’t live here you should not be allowed to purchase …I get people call it an investment for their future but what about ours at this rate unless our kids are born into money they will never be able to buy a house on their own how fair is that for the people who actually live and work here in Canada

      • Reply
        Tommy 5 days ago

        Well are we not a capitalistic society, or is it capitalistic only when the banks (BMO, RBC and others ) make record profits. (love the sponsorship logos on pro-golfers).

        I am all for keeping an eye on speculation buying from out of country, and possibly “shady” investors.

        From what I am reading some financial institutions want to put a Capitol gains tax on a primary residence please give me break, this is not the former USSR.

        Over and above we are in a pandemic, and not knowing what the future holds, who knows how this world will look once we are out if it, yet the big banks want to watch out for themselves yet again, my two cents is let it be.

        • Reply
          World Class 5 days ago

          The issue is that in housing in Canada is not a free market. The government has intervened to ensure that it is a risk free bet – removing all of the typical risk/reward from the equation. In no society should the increase in your primary residence in a single month or quarter be greater than your ability to earn an income; especially when the government has been handing out cash.

          All other investments in Canada are taxed – I start a business and sell it, taxed. I invest in the stock market and sell, taxed. Why should your house be treated any differently? Please don’t argue then that interest rates should be deductible then and property taxes should be deductible – interest rates and property taxes are peanuts in Canada compared to the US.

      • Reply
        Shaun 5 days ago

        Exactly!
        And they call this news? It’s pure shame..
        FOMO? Really??

        • Reply
          Travis Hunter 5 days ago

          Boomers have unique talent where they can tell you their age using just an anonymous comment. If you don’t like it, go read what they say in two weeks, when they interview them for an explanation in Vancouver’s MSM.

          I was complementing them. The ability to explain complex issues in language people my age use is a real talent. I’ve learned more about economics reading this site over the past year than I have in my whole life reading other Canadian outlets.

          • Peter 5 days ago

            Markets of everything have ups and downs. Pressure on every up or down will result in an equal and opposite reaction over time. When interest rates increase, so many new homeowners will be under water, their crying will be heard ,but there will be no respite.
            Depression, here we come.!

      • Reply
        Kimberley Hedger 5 days ago

        We need to stop the stock market goons from kidnapping our homes!

    • Reply
      ANTI 5 days ago

      Why BANK is not making enough profit we know that the Insurance and bank are milking the money look at the interest they giving the people for their money it is a joke

      • Reply
        Shaun 5 days ago

        Exactly!

      • Reply
        Peter 5 days ago

        Banks are not interested in your money.
        Only if they get into trouble, will the enforcement of ” bail in” will they want it. Now, they do not need reserves to write any loans, so profits are immense. Best protection are gold, farmland and some silver coins. Inflation first then deflation, then depression.

  • Reply
    Mark Saliba 6 days ago

    What’s wrong with these bankers? I am sure New York, L.A., London, Paris…….and the list goes on, passed through the same increase in home prices as Toronto and Vancouver. Let the market (demand/supply) dictates real estate prices WITH NO OUTSIDE INTERFERANCES. Thanks
    Mark Saliba

    • Reply
      Ethan Wu 6 days ago

      That’s incorrect. Most countries try cool home prices after 5% growth at the national level. World’s biggest bubble in the US was only 10%. Canada is seeing small towns rise by 30%+, Hamilton is 40%+ overvalued, and national prices are increasing 20%.

      This isn’t a supply and demand issue when the central bank breaks market mechanics. They intervened to push prices higher.

      • Reply
        Holton 5 days ago

        I do agree with you over all. But the real issue is they should have let home prices drop during the pandemic.
        Now its too late because the whole world is on its way to rebound, if Canada drop real estate prices now we are screwed.

        What will likely happen is they will have half ass measures to cap price growth but allow inflation to go higher for longer period of time.

        That is what happened in Asia and that is what will happen here when faced with the same situation.

      • Reply
        Shaun 5 days ago

        None of the countries you mentioned are getting/wanting immigrants as this one does. That’s not bubble.
        It’s called GREED of the bankers

    • Reply
      SH 6 days ago

      Let the market decide….ok cool. So abolish the CMHC, end the bond-rigging by the Bank of Canada, enforce anti-money laundering laws, and absolutely never again compel the banks to give mortgage deferrals to save the overleveraged. Sound good?

      Or is this more Boomer “Free market for THEE but not for ME” attitude?

      • Reply
        Jimmy 5 days ago

        love it

      • Reply
        Mike from Canmore 5 days ago

        I would 100% Vote for this. But I don’t think that the 60% of home owners will go along.

        • Reply
          Vote yes 5 days ago

          You might be surprised given more and more homeowners now have adult children living at home with them due to high housing costs… also any home owner who considers how this impacts future generations (including their immediate family).

      • Reply
        Sam 4 days ago

        I’m in. That’s platform enough to buy my vote.

    • Reply
      RM 5 days ago

      That would be fantastic. So let’s normalize rates and do away with the CMHC so that tax payers aren’t on the hook for reckless lending. While we’re at it, let’s also normalize property tax and first-time home buyers incentives. You sure want a free market? Because I don’t think you do.

      • Reply
        Kris 5 days ago

        Yes we do. It’s called capitalism and gov needs to stay out of it.

        • Reply
          Paul 5 days ago

          Kris,

          If the banks didn’t defer and provincial and federal payments weren’t made you wouldn’t have lost your house? What about your extended family or friends? You are ok but everyone around you ends up bankrupt just to keep shelter? Capitalism or not shelter should be a right and not a privilege in an advanced society. Without it we are walking backwards.

        • Reply
          Sam 4 days ago

          Governments need to stay out of it the way Referees need to stay out of a Hockey game.

          Central Bank monetary & fiscal policy and action is required. Governments have a responsibility to implement good policies and regulations, ones that foster a stable, competitive, balanced marketplace.

          The problem is the poor management of our housing industry from both the BOC and Gov.

  • Reply
    Nel 6 days ago

    But the bank chooses how much they loan you.

    What the interest rate is shouldn’t matter. Banks could learn to say no and provide real world valuations on property value.

    • Reply
      Ethan Wu 6 days ago

      One bank stopping it doesn’t do anything. When the CMHC said they would stop insuring mortgages for highly indebted borrowers, competition just picked it up.

      It doesn’t matter to a bank if you receive the business, because the taxpayer picks up the funds. Protecting yourself only leads to others getting more profit, if it’s not a universal regulation.

    • Reply
      Paul 6 days ago

      Nel,

      That won’t happen. They are competing against each other and if you look back through the news from about 3 years ago associates at the banks were under pressure to perform and sell as many products as possible which included Helocs and mortgages. I’m sure nothing has changed.

      • Reply
        Paul Gautreau 6 days ago

        If your going to short form words like FOMO at least spell it out once at the beginning of the article so some of us can understand what your talking about , thank you.

    • Reply
      Bob Walter 6 days ago

      If your thoughts are you are paying back your mortgage to your bank, this is mostly not the case. They package up the loans and slice and dice them with other more questionable financial products (like derivatives) and sell them on.

      Your bank may collect your money but it doesnt own your mortgage.

      Another interesting fact is the BOC owns 30% of mortgages outstanding in Canada. It is on track to go to 50% in the next couple years. So the BOC is really your landlord. How cool is that the government is likely to own your house.

      • Reply
        Sam 5 days ago

        Which means the Banks lend recklessly, sell off a sizeable chunk of their loans to the BOC, who is stuck carrying the bad debt if there’s a meltdown.

        Of course, there’s the CMHC involvement.

        Can someone bring us through a narrative of what will happen if there’s a bubble burst and a crap-ton of defaults?

      • Reply
        Kris 5 days ago

        Hello Socialism….. At current mortgage sizes you think you really own the house but in fact you are essentially renting from the bank. Don’t believe me? Try missing a few mortgage payments and see who puts the for sale sign up on your lawn.

  • Reply
    V 6 days ago

    It’s funny because before properties skyrocketed I tried to get a loan from TD with over 700 credit score for 184k on a legal duplex in Oshawa valued at 445k with no other debt and was denied. Now their wondering why I’m removing all my money from their bank. And now I’m wondering how the hell are all these people getting money for 750k plus duplexes in Oshawa.
    Crazy!

    • Reply
      Resistance Is Futile 5 days ago

      You are lucky. I will not do business with TD Bank again. TD is the most predatory and litigious of all banks in Canada. If you get your TD $100,000 LOC statement and it incorrectly states you owe $300,000 – agree to pay down that $200,000 immediately. The conflict resolution squad ironically named ‘TD Cares’ will definitely demand that before even discussing the problem.

  • Reply
    Julie 6 days ago

    We recently had a recession where the government paid people who were not working $2000 a month and let anyone who couldn’t pay their mortgage take a break for a few months to catch up to their bills. If we had just left the market “WITH NO OUTSIDE INTERFERENCES” you can be sure the housing market would not have been up this year.

    • Reply
      Kimberley Hedger 5 days ago

      Not true, this is happening all over the world. It’s the pension funds or Chinese buying everything in cash.

  • Reply
    Daniel Abraham 6 days ago

    Im selling three properties and when I advised scotiabank they didn’t answer. They opened me three lines of credit on top of the mortgages and handcuffed me. They are pissed that it didn’t work…

    Watch out for scum financial advisors and banks who open lines of credit without your permission. Avoid the STEP program

    • Reply
      Max 5 days ago

      What’s wrong with the STEP program ? It’s based on how much equity you have in your home.

      • Reply
        Paul 5 days ago

        Max,

        I think he is suggesting that the bank is hoping you use those lines and eat up any chance of paying your mortgage off sooner than later.

        It is true Scotia will give you debt instruments if they see any opportunity.

  • Reply
    Holton 5 days ago

    Guys its not just Canada, its happening all over the world. That is because they printed lots of money and that extra money will go into real estate.

    Toronto and Vancouver is way over priced will most likely see the deepest correction if it happens. But on the other hand cities like Ottawa and Montreal are still very affordable. Those are good investment opportunities.

    • Reply
      Pepp 5 days ago

      Well, Ottawa is a good place. With higher median income and government jobs to defend against economic downturn.

      Its way under valued right now compare to Toronto and Vancouver. Especially those houses with big lots close to downtown core and transit. They will never have those big lots again. So the supply of those are fixed

  • Reply
    Vaneet sharma 5 days ago

    What is this nonsense for a common citizen . You do not buy overasking homes with your 1.3 % or 5% interest . You buy your home with a down payments which is now days thousands of dollars or average 100 plus thousand dollars . Canada becomes a land of black marketers and dumping ground of black money from all over the world. Look at the difference between a small family house hold income and price of an average house. Bad political and administrative structure and all over above corruption in our countries system making rich man more richer while an average family is surviving cheque to cheque. Once a land of hope and peaceful life is loosing its charm . A society based on Capitalism is a other face a communist country.

    • Reply
      Bob Walter 5 days ago

      One correction, what you are seeing now is not capitalism or free market banking. It is central planning and central banking. Removal of price signals and manipulation of market results in misallocation of capital.

      For instance you are required to put 100K into your real estate, which you could have used to start a business. If the price signals were there you would know what business to start (capitalism) But nowadays you might be inclined to be a Realtor (central planning)

      • Reply
        Kris 5 days ago

        Correct. You are bang on. Also just recently the fed is no longer reporting M1 and M2 money supply on a weekly basis. What are they hiding? Maybe inflation is not transitory is it now?

  • Reply
    James Lattimer 5 days ago

    The banks do not care, If you are foolish enough to get a huge loan and the value drops YOU still owe the money you borrowed! BANKS making huge profits is all that matters!

  • Reply
    Herry 5 days ago

    Ha, ha, ha, ha,… As if a a bank gives a shxt about its customers ! Ha, ha, ha, ha,… That’s the joke of the day…

  • Reply
    Noah 5 days ago

    I believe that , Bank of Canada and its policy into the housing market and mortgage Canada corp what raise the prices up , out of reach. and put our young generation distance from thinking of buying a home , now and in the future.

  • Reply
    Mark Saliba 5 days ago

    Property value increase saved our economy from collapsing!! Many many people livelihood depend on construction. I am on BoC side, they know what they’re doing. I am for abolishing CHMC, they caused the bubble in Vancouver when they changed the borrowing rules preventing the youth from being able to buy. Lower interest rates reduces banks profits, and they don’t like it.

    • Reply
      Sam 5 days ago

      It’s not construction that’s benefitting from this mania. BoC engaged in QE to free up liquidity, ratchet down the interest rate to boost the economy ahead of the pandemic fallout. I believe they were caught off guard by the FOMO driven housing boom. Stephen Poloz is on record saying that if a super-hot housing market is a by-product of saving the economy from a huge recession, it’s a trade off he’ll take 10x out of 10. I belief Tiff and the rest of the BOC would agree.

      What all this proves is that the BOC is tone-deaf to housing unaffordability, and has been for a long time. They either don’t see or care how monetary and/or fiscal policy affects the housing market for average Canadians.

      At any rate, the only parties benefitting are the lending institutions and speculators.

    • Reply
      Smaug 5 days ago

      Banks have set record profits year after year after year for decades now, as interest rates have fallen, then fallen some more. No, banks do not dislike low rates. They love them. What they lose in margin (not much because their rate of borrowing also falls) they make up for in volume.

      And preventing youth from buying does not create a property bubble. That’s just asinine.

    • Reply
      Bob Yerunkle 5 days ago

      Enjoy living in your construction based sh*thole. Each day that prices rise is a day closer to me leaving the country for good. I love it here, but if I can’t have a life here there’s simply no point in being here. It’s not THAT good that i would be happy to be a mortgage serf for the rest of my life.

      Oh, and I’ll take my juicy income with me, and my partner’s (200+k combined), and all of our spending. Like I said, enjoy your construction based sh*thole. At some point there just wont be any money left to churn. People like me leaving quickens the arrival of that. What then?

      • Reply
        Kris 5 days ago

        It’s a game of chicken. They are betting that you won’t leave no matter what. In other words they don’t care.

      • Reply
        Mark Saliba 5 days ago

        It’s hard to explain in few words. But the banks need to hire more staff, open more branches and an increase cost in conducting the business if they were to rely on volume vs higher interest rate!!! Today on BNN a lady economist who was interviewed said that preventing the young to enter the market was PART of the cause of the Vancouver housing bubble.

      • Reply
        Ashley 5 days ago

        Similar situation as yours, just waiting for Citizenship to arrive so it’s easier to go to US for work. US much cheaper, better job opportunities and higher standard of living.
        Canada can keep fooling people to publicize it has more IT jobs than all of Seattle and California, pretty sure fools would buy into that 🙂

      • Reply
        Sam 4 days ago

        Try Austin, or Colorado Springs, or Denver……or Portland, or Charlotte, or Nashville, or….well, there’s actually a lot of great, affordable places in the States with great standard of living and great job opportunities.

        And to think I used to be so anti-American. I want to thank the BOC and canadian government for helping rid me of my prejudice.

    • Reply
      Little Birdie 5 days ago

      The current construction going on, for the most part, has little to do with the pandemic / recent BoC decisions / QE easing as most of those projects were already in the works. What it would be impacting is any NEW projects (which might possibly have construction starting later this year as it takes time to design / acquire permits / etc).

      The current boom in housing prices is only helping real estate, industries related to real estate (brokers, insurance, movers, etc) and any home renovation projects – quite different then new construction.

      It’s not a fix to the economy at all, just a bandaid on top of multiple bandaids. We need to increase productivity, local businesses, innovation, etc. We should have ripped it off to fix it properly from the start.

  • Reply
    Kevyn 5 days ago

    A lot of attention going toward BoC policy , FOMO , flippers/investors.
    A large portion of the buyers just want somewhere to live. The rental market is super tight as well. For a lot of young families looking to add a bedroom, they can’t sell there condo because they can’t buy back. You have to beat 20 other people for everything . Good luck having a offer accepted with conditions….

    • Reply
      Kris 5 days ago

      If you think supply is bad now just wait till they open the flood gates to 400k new immigrants per year increasing by 10% per year after that. Where the heck are all these people going to live? What a mess.

      • Reply
        Ashley 5 days ago

        If immigration is driving housing shortage then there is a bigger problem on-hand, when was the last time it was heard that a new hospital, school or community center being built, 400k are just going to deadlock the whole system. So you have a $1M home but have to wait 12 months to see a doctor, your kids have to stand outside for classes because there is no space inside. Great, feel good about your housing wealth.
        If housing shortage is really a problem then City Planners are useless. Shortage is people hoarding multiple properties because hey prices will be up 20% by year end.

  • Reply
    Steve 18 hours ago

    Is the bubble planned?
    This is either a intended, perhaps informal, Fiscal policy to boost employment in the housing and renovation sector at the victimization of young families carrying onerous debt levels and further reducing our population growth.
    Or:
    It’s a consequence of our BoC monetary policy of the 2% inflation rate of the CPI and not a true reflection of the real inflation rate of all private sector debt payments.

    It’s a consequence of the CMHC not having a inflation control mandate to synchronize with wage increases and continuing to insure bank mortgages.

    It’s a consequence of allowing foreigners to buy our land and our citizens to buy more than one residential house.

    It’s a consequence of allowing a “personal covenant” to remain in mortgage contracts.

    The consequences of bank shareholder driven control over which economic sector gets fiscal stimulation through lending.

    The consequence of the Federal balanced budget myth spread by all the political parties because the tax/fed spending ratio can regulate our economy.

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